The Salad Oil Swindle That Floated on Water

Anthony "Tino" De Angelis ran the Allied Crude Vegetable Oil Refining Corporation out of a tank farm in Bayonne, New Jersey. By the early 1960s he had borrowed against more soybean oil than the United States had ever produced. The lenders — Bank of America, Chase Manhattan, Bank Leumi, and the warehousing arm of American Express — were satisfied because their inspectors kept dipping the tanks and hitting oil. They were dipping into water.

De Angelis had figured out that oil floats. A tank could be 95% seawater with three feet of soybean oil on top, and a sounding rod dropped from the hatch would come up slick. He also rigged tanks with hidden pipes to move the same lake of oil between tanks during inspections, and eventually skipped to forging warehouse receipts outright. By November 1963, Allied was claiming 1.8 billion pounds of oil as collateral against the actual 110 million pounds in the field. He had pulled $180 million in loans against the gap.

The scheme cracked on November 19, 1963, three days before President Kennedy was shot. The Allied bankruptcy filing got buried in the news. American Express, on the hook for warehouse receipts it had certified, watched its stock fall by over a third. The market assumed the company was dead.

Warren Buffett, then running Buffett Partnership Ltd. out of Omaha, sent his people into restaurants, hotels and travel offices to ask whether anyone had stopped using the green card. Nobody had. By June 1964 he had put $3 million into American Express at an average $41.22 a share — about 17% of his fund at the time, eventually 40%. The stock more than doubled by 1966.

De Angelis did seven years and got out in 1972. The frauds he popularised — collateral inflation, oil-on-water inspections, multi-counted inventory — are still the first three pages of any commodity-finance fraud playbook.